We’re Frighteningly in the Dark About Student Debt

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CreditCreditMatthew Billington

By Susan Dynarski

March 20, 2015

Imagine that a big, complicated company holds a huge portfolio of loans, many of which are in default or delinquency. The company’s leadership and some vocal shareholders demand a detailed review but receive a thin and incomplete report from the loan division.

Financial analysts at headquarters want to scrutinize the data. But the loan division doesn’t turn it over. Without better data, the firm can’t move forward.

This dysfunctional enterprise is fictional, but in at least some respects it bears more than a passing resemblance to the United States government, which has a portfolio of roughly $1 trillion in student loans, many of which appear to be troubled. The Education Department, which oversees the portfolio, is playing the part of the loan division — neither analyzing the portfolio adequately nor allowing other agencies to do so.

These loans are no trivial matter — not for the borrowers responsible for them or for the country as a whole. Student loans are now the second-largest source of consumer debt in the United States, surpassed only by home mortgages. In a major reversal, they now constitute a larger portion of household debt than credit cards or car loans.

Student debt has grabbed the attention of the Federal Reserve, the Treasury and the Consumer Financial Protection Bureau. Officials in these organizations worry that student debt threatens the well-being of households and the federal budget, since taxpayers are liable if student loans go unpaid.

Several years ago, the mortgage crisis caught policy makers flat-footed, and they are determined not to be surprised by a possible future collapse rooted in household debt. “While regulators have beefed up monitoring of the mortgage market, similar efforts are needed to better understand and address the drivers of the millions of student loan defaults that have piled up in recent years,” said Rohit Chopra, the consumer bureau’s student loan ombudsman.

The frightening reality, however, is that we are remarkably ignorant about student debt. How many borrowers are delinquent on their federal loans? How does delinquency differ by amount of debt, income and education? Which colleges leave students underwater, with low earnings and large debts they can’t pay?

That’s just a start. We also don’t know how many borrowers are eligible for federal debt relief, which caps payments and forgives balances, or how many have tried, but failed, to get such relief.

Because we can’t answer these questions, we can’t quantify the risks that student debt places on individual households and the economy as a whole. This limits our ability to help borrowers before they spiral into default.

During a recent meeting at the Federal Reserve Bank of New York, William Dudley, the bank’s president, noted that “there are many important questions still left unanswered” about student loans, adding, “but it is very hard to answer these questions with existing data.”

Why can’t we answer these basic questions about student debt? The Education Department runs the federal loan program, but it has not released detailed analyses or handed the data to those who could do the necessary number-crunching.

The Federal Reserve, which tries to keep a close eye on household debt, has purchased credit records from Equifax that let it track trends in student debt. That’s right: The central bank relies on a private firm for data about student loans, when much of the data it needs is held by a federal agency. The credit records are better than nothing, but they lack crucial details like the type of loan and the college the borrower attended.

Of course, the Education Department publishes some information about its $1 trillion student loan portfolio. Several spreadsheets sit on a department website, and that is where Denise Horn, a department spokeswoman, directed me when I asked about the loans.

But this data doesn’t say much. It does not provide delinquency rates for all loans, for example, or information about how many borrowers have managed to renew their debt relief. To get such additional information, Ms. Horn suggested, a Freedom of Information Act request would be appropriate.

David A. Bergeron spent 34 years at the Education Department, ending up as an assistant secretary for postsecondary education. He left in 2013 and is now vice president for postsecondary education at the Center for American Progress, a Washington research organization. Mr. Bergeron says he is frustrated by the incomplete data. “The department releases only very high-level summary statistics, which do not allow us to understand the problems facing individual student borrowers,” he said. “Trying to solve a problem with incomplete information leads you to the wrong solutions.”

By contrast, we know far more about the mortgage market. The consumer bureau, along with other agencies, publishes extensive, detailed information about mortgages, lenders and borrowers. Government and private analysts use this information to gauge, in real time, the mortgage market’s health. Along with the Federal Housing Finance Agency, the consumer bureau is taking this already detailed data further, creating a national database that will track home loans from origination through payment.

This close oversight is critical for preventing another mortgage crisis. And it’s a terrific model for what we should be doing with student loans. But at the moment, the federal student loan data remains locked within the walls of the Education Department, with limited metrics trickling out.

There are many possible explanations for the continuing data blackout: legal restrictions, budgetary constraints, clunky software. Federal Student Aid, which holds the loan data, is an operational unit of the Education Department, not a statistical office geared for analysis. In fact, that office outsources the operation of the loan database to a small business, leaving the data difficult to retrieve for its own staff researchers who need to quickly answer a question.

When asked why the loan data is not being shared with analysts within and outside the government, Ms. Horn cited privacy concerns. Yet the federal department urges state departments of education to develop detailed databases and helps them work through privacy issues so that the data can be shared with researchers.

Other federal agencies, including the Internal Revenue Service, have made data available to researchers while safeguarding privacy. Thomas Weko, who left the Education Department last year and is now a research manager at the American Institutes for Research, says that while he was an associate commissioner of education statistics, he tried to develop secure methods for sharing loan data. “The effort was doomed,” he said, “not by financial or legal constraints but by a lack of will at Federal Student Aid and the reluctance of senior political leadership at the Department of Education to press for action.”

Asked for a response to this criticism, Ms. Horn declined to comment.

Over at the Federal Reserve and consumer bureau, as well as outside the government, highly trained analysts are eager for data. One solution might be for the Education Department to put it in their hands and let them get to work.

A longer-term solution could be to move the loan program out of the Education Department entirely — either into an existing agency that has the statistical expertise or a new student-loan authority. In Britain, an independent public agency has been devoted to student loans for 25 years.

Analyzing the complicated student loan market may not be a job for the current Education Department, which lacks a chief economist. Another agency might be better equipped to handle it, allowing the department to focus on its central goal: improving education.

Susan Dynarski is a professor of economics, education and public policy at the University of Michigan. She has advised the Obama administration on the findings of her student-aid policy research. Follow her on Twitter at @dynarski.